California set to bring law addressing gender, race 'bias' in venture capital funding

California is set to become the first state in the US to enact legislation to address gender and race bias within the venture capital industry. State Bill no. 54 (SB54), which received approval from the state legislature earlier this month and now awaits the Governor’s assent, will require venture capital firms to disclose the race and gender of the founders they fund. While the business community opposes the legislation, decrying it as bureaucratic overreach, civil rights groups and female entrepreneurs argue that it could be a significant stride towards equalising opportunities in Silicon Valley, where startup funding has overwhelmingly favoured white men. According to the Guardian, which cited business data firm PitchBook, companies founded by all-female teams secured a mere 2 per cent of venture capital funding last year. Ventures led by Black and Latin American women fared even worse, receiving just 0.85 per cent of the funding. Marquesa Finch, who helped Democratic state senator Nancy Skinner to draft the bill, emphasised its importance, stating, “This is a chance for us, for the industry to look itself in the mirror – to finally, wholeheartedly internalise that we have a bias problem.” She recounted instances of being mistaken for support staff and facing sceptical questions about her leadership capabilities when pitching to venture capital partners, who are predominantly white males. This, she argued, stands in stark contrast to the questions posed to her male counterparts, which often revolve around growth and potential. California Governor Gavin Newsom has yet to signal whether he will sign or veto the bill. He has until the 14th of October to make a decision. California played a pivotal role, representing over 40 per cent of the nearly $246 billion in venture capital funding invested in the United States in 2022, as per data from PitchBook. Given that the law applies to both California-based venture capital firms and those that invest in the state or solicit funds from its residents, its impact is expected to reverberate throughout the country. The legislation encompasses virtually all major players making substantial investments in artificial intelligence, including Silicon Valley giants such as Sequoia Capital, Andreessen Horowitz, Soma Capital, and Khosla Ventures. These firms have been instrumental in funding ventures like OpenAI (the creator of ChatGPT), Character.ai, Cohere, and SellScale. Controversies surrounding racial and gender bias in AI products, which attracted $22.7 billion in venture investment in the first quarter of 2023, have received extensive coverage in the media and have been the subject of academic scrutiny and civil rights advocacy. In response, the Biden administration introduced its “Blueprint for an AI Bill of Rights” last year, aimed at addressing algorithmic discrimination and mitigating the adverse impacts of automated systems on underserved communities, according to White House senior adviser Susan Rice.